By Craig Bowles
Microsoft Corp. (MSFT) is slated to report 2Q2014 earnings after the bell on Thursday, January 23. The earnings release is expected at approximately 4:00 p.m. EST with a conference call to follow at 5:30 p.m. that is webcast through Microsoft Investor Relations. A member of the Dow Jones Industrial Average, Microsoft has significant market influence and the potential to impact the broader market gauges.
Outliers & Strategy
- Non-GAAP EPS: The current Street estimate is $0.68 (Source: Yahoo! Finance).
- Revenues: Revenues are seen rising 10.4% y/y to $23.68 bln.
Insider selling continues with the last six months having sold 40 mln shares but the company is attempting to offset this with a new $40 bln stock buyback program that was announced this past September.
Microsoft shares have been seeing increasing movement off earnings during the last year, so the 1-day average price change on earnings of just -0.2% is deceiving. Microsoft's earnings releases have recently produced roughly a dollar of price change for every 3-4c that earnings vary from consensus. The technical setup could make Thursday even more interesting. Index futures are more apt to be impacted by surprising results from Microsoft given what appears to be a leadership change out of some of the momentum stocks.
01/14: Citigroup downgraded Microsoft to Neutral from Buy but admits price in the short-term will be driven by the CEO search, according to a post on StreetInsider.com.
01/10: Barclays upgraded Microsoft to Overweight from Equal Weight citing a lower probability of an outsider becoming CEO will allow investors to refocus on improving fundamentals, according to a post on StreetInsider.com.
Microsoft shares after being basically flat for a decade are attempting to move higher again after 2007's failure. This breakout from consolidation has resulted in a bumpy uptrend since 2011 supported by the general market. Shares recently have fallen into an interesting wedge pattern over the last couple of months. The 20-day MA being below the 50-day, the weak Relative Strength Index (RSI) and MACD suggests some urgency for the share price getting back above $37.25. Should earnings disappoint, the stock would test this uptrend pretty quickly down at around $34.00. Microsoft shares are at an important technical point that puts increased importance on Thursday. (Chart courtesy of StockCharts.com)
Microsoft bulls are hoping this second attempt at moving higher will have a longer duration than the last one in 2007. The company is in the process of finding a new CEO and has launched a large buyback program to offset insider selling. Expectations for the current release have been reduced by analysts over the last three months, so should be easier to beat. While Microsoft's earnings release has produced roughly a dollar of price change for every 3-4c earnings vary from consensus, the interesting technical position and news surrounding the company suggests price change could be enhanced. Whether that reward if directed to the bulls or bears could soon be determined and the bulls are getting a 2.7% yield to wait.
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